Why Trust, Respect, And Admiration Are The Critical Components Of Good Dealmaking
Every entrepreneur is a dealmaker at heart. You see, entrepreneurs don’t just like to create value; they like to search for outsized returns on their efforts.
The experience of providing someone with the exact thing they’re looking for at the exact moment they’re looking for it is nothing short of magical.
Most modern entrepreneurs hope to one day exit their business and realize the returns they’ve worked so long to generate. The prospect of selling your business, however, can be so intoxicating that it clouds your judgment and becomes a wildly frustrating process.
Here’s a hard truth I learned firsthand: When it comes to dealmaking, nothing is as easy as you’d like it to be.
I think that most of the frustration stems from the tendency to think that reaching a basic agreement and receiving a term sheet represents the apex of the deal-making process.
In reality, the term sheet is only the beginning of the process. What plays out after terms are presented can make or break any deal.
Your ability to overcome these challenges comes down to the relationship you have with the other party involved in the deal and whether you trust, respect, and admire them.
In life and business, I’ve always tried to err on the side of transparency. To that end, I have never shied away from the fact that most of the knowledge I’ve gained as an entrepreneur comes directly from making numerous near-fatal mistakes on a regular basis.
My editor here at Forbes is a constant source of good advice, but one of his bits of wisdom stands out above the rest. He once said “Don’t tell your readers what you’ve learned. Show them what you’ve learned.” So, with that in mind, I thought it would be appropriate to share a story with you.
A Story In Contrast
A few years ago, I came very close to taking on significant investment from an upstart venture firm out in Kansas City. The firm was referred to me by a professional contact whom I trust, and their team seemed to possess a pedigree that suggested they would be solid partners going forward.
After the initial due diligence process, they submitted a term sheet which I subsequently accepted. I submitted it back to them for counter-signature and waited. Days turned into weeks, and every time I pushed them on the status of the deal, they came up with some kind of excuse.
At the time, I simply couldn’t wrap my head around what was happening. After all, they made an offer and sent a term sheet for me to sign. This lack of mutual understanding and communication was incredibly frustrating and pushed me to the brink of civility.
Eventually, I had to pull the plug on the whole ordeal and go in a different direction, but not before I learned an important lesson: I had failed to recognize who I was dealing with.
You see, these individuals looked great on paper, but in my eagerness to take on their investment, I failed to really get to know them. What little I did see in my interactions gave me pause, but I intentionally overlooked the red flags because I just wanted the deal to come together.
Had I accepted the truth earlier, I would have known that they lacked the funds, experience, and internal consensus needed to move forward according to plan. I also would have recognized that their lack of process was a red flag that should have sent me running for the hills.
You see, they weren’t individuals whom I could trust, respect, or admire. I knew that on a gut level, but I pushed forward out of a mixture of desperation, ignorance, and hope.
The process nearly ruined me on a few different levels. First, it put my company in a precarious financial position that was difficult to overcome. Second, and perhaps most importantly, the experience turned me into the type of person I didn’t want to be: angry, bitter, and vengeful.
Fortunately, time heals all wounds, and I was able to emerge from the experience stronger and wiser than before, due in large part to the support of my mentors and friends.
This experience stood in stark contrast to the one I had years later when selling BodeTree’s original line of business.
My experiences have, understandably, led me to be somewhat gun-shy when it came to any new partnership or investment opportunities. However, when I was approached by an acquaintance looking to learn more about our product, I took the call.
The alignment between our two companies was clear right from the onset, but I was still afraid to get too excited about a potential sale or partnership. To get over this hesitation, I set out to focus less on the business opportunity and more on the people I’d be working with.
Unlike in times past, we spent our time getting to know each other, our backgrounds, and philosophies. Looking back, I’d say 90% of the time we spent in the initial due diligence phase was focused on answering one question: are these people we could trust, respect, and admire?
It took some time, but ultimately the answer was yes, we could. It was at that point that we decided to move forward.
There were certainly moments in our most recent process when there were delays in communication or unexpected post-term sheet due diligence requests.
However, unlike before, this time around I took the time to get to know the people I was dealing with. We had open lines of communication and were able to navigate the closing process together.
I think that at the end of the day, the lesson is simple: only work with people you trust, respect, and admire.
Sure, there may be bumps in the road to success, but if you have confidence in the group you’re dealing with, none of them will be insurmountable.